Tuesday, August 16, 2011

Sewerology 102: Reinsurance

The story says most homeowners tested have failed a required test on how their sewers are tapped. The first phenomenal factoid is just that nearly 20% of homes tested failed. Clearly it is a costly repair to redo a sewer line.

What I can’t believe some unnamed person at the PWSA had to say comes from this section in the story:

A representative for the PWSA said they were starting a line warranty program at the time, which would have covered repair costs, but that a Federal judge found the program to be illegal earlier this year.

Holy Preexisting Condition.... So let me get this right. An insurance/warranty company, a new and undercapitalized insurance/warranty company at that, taking in $5/month is about to be able to shell out nearly $10K per property on more than 20% of the insured. There is a business model for you. If you really think that was going to happen, that Brooklyn Bridge is still for sale on some infomercial somewhere. I think I am beginning to appreciate how they got themselves into the bind with the variable rate bonds.

And when did Judge Wettick get put on the Federal bench? Good for him. I know there was a brief Federal appeal of his ruling, but that was not really the core of it all was it?

Fundamentally it makes me wonder if this ULS company itself had any reinsurance to make sure payouts were made in such extreme circumstances… but again, it was a warranty. Is there a market for rewarrantification? I'm sure Lloyds would have written something if you really pressed them, but at what price?

Seems to me the real story hidden in that is a lot more interesting. The story seems to say that the PWSA tested the parcels but did not tell the homeowners over a period of time they were insured through the program. Did the PWSA withhold information that would have allowed homeowners to make claims on the warranty when they were covered? That would be interesting now wouldn’t it? It would depending on the timing mostly.